Korea Kimchi Discovery #23
Oil Shock: Downside Risks to Margin Expectations (C)
? KOSPI risks on margins and costs – We see the biggest threats to Korean stock
valuations in potential disappointment on margins due to high expectations
(currently consensus expects rising OPM until 3Q) and surging oil prices (WTI:
$133.2/bbl as of May 21 vs. consensus estimate of $97/bbl for 2008).
? Macro impact of rapidly rising oil prices – Sharp increases in oil prices will
likely trigger further inflation, a deepening current account deficit (8% of GDP
if oil price rises to $200/bbl), and squeezed profit margins, especially for SMEs.
Interest rates would likely rise, which would negatively impact Korean banks.
? Who can pass on margin pressures? Steel, construction, industrial, shipbuilders,
insurers, and complex refiners are more defensive in a rising oil price
environment due to either pricing power, cost restructuring or mix
improvement.
? Which sectors are most vulnerable? Utilities, chemical, tourism, telecoms,
banks, consumer, auto, and tech sectors are relatively more vulnerable to
rising oil prices and an inflationary environment.
? Investment strategy in a rising oil price environment – Defensive: POSCO,
Samsung Eng, GS E&C, Doosan Heavy, Hyundai Heavy, Hyundai Marine & Fire,
and S-Oil. Vulnerable: KEPCO, Honam Petro, Hana Tour, Hotel Shilla, KTF,
Kookmin Bank, Shinsegae, Hite, Orion, Cheil Ind, SDI, TEW, and Kia Motor.
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This is a 56 page research report that has a LOT of charts, graphs, and discussion. If anyone here knows someone with access to C research, ask them to get hold of it for you.
A quote for HYHZF at C for this as the most recent research report.
Lynn |
